How Do I Manage Risk When Heading Into a Drought?

Unfortunately, there is no one solution to manage drought, as every farm and its operations are different. Through drought and excessive moisture, the best approach to any sort of weather event is to be proactive. This allows you time to create a water conservation or grazing plan. If you have any questions about creating a risk management plan, your financial institution’s Relationship Manager can help you prepare. 

Lasting Effects Of Drought On Farms And Ranches

Something that has been unprecedented for many farmers across Alberta is the lasting effects after drought or the drought “hangover”. This has challenged the growing environment and its ability to bounce back from repeatedly dry years and overgrazing. Knowing your region is essential; the earlier you anticipate and prepare for your local conditions, the better.

Whether you are a dryland or irrigated producer, there can be implications on your crop yields or pasture when dry conditions come about. These environmental factors will lead to a change in the level of risk, which may be more than you are used to. 

Managing Risk Throughout Drought

1. Consider Essential Insurances—Crop Insurance and Moisture Deficiency Insurance (MDI)

High-level decisions will always involve a level of risk management. Regarding insurance, the plan you choose must coincide with the level of risk you are undertaking on your farm.

These insurances were created specifically for drought situations. They will help to cover production losses and recover your input costs. The same strategy applies to livestock insurance. Does your plan cover the relocation of animals? Sometimes, what feels like just another cost, could actually be the right move for your farm. It’s a lot to consider, and why we recommend including your banking Relationship Manager as an advisor at the table when discussing insurance plans with your broker. 

Apart from crop insurance, another plan to explore is Moisture Deficiency Insurance (MDI). Agricultural Financial Services Corporation (AFSC) takes an average rainfall and will insure you based on any shortfalls compared to statistical averages in your area. 

2. Stay Agile 

When dealing in an environment that is so unpredictable, the most important tip is to stay agile in your plan. Sometimes that leads to rethinking your strategy. Changes to herd sizes or total acres farmed are important to regularly evaluate. 

When shifting strategic direction, surround yourself with the right team of experts to help you make informed decisions. Tap into the expertise of your suppliers, banking advisors, accountant, agronomist, and insurance broker.

3. Look for Flexible Lending Solutions

If existing machinery, land or livestock are bottlenecking your operation, a flexible lending solution may not only solve the problem but also lay the groundwork for future success. Changing interest terms, leveraging loans, and exploring property expansions are just a few tools your banking Relationship Manager may offer to address your situation and needs. Custom flexible solutions can open opportunities that allow you to move your operation forward. The right strategy will help you prepare for capitalizing on boom years as surviving the bust ones.

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You may be interested in the June 11, 2024 edition Prepare for the worst, hope for the best: Alberta’s primary agricultural sector in 2024.